Exhibit 4.1


 


SECURITIES PURCHASE AGREEMENT


 


By and Between


 


ANDOVER MEDICAL, INC.


 


and


 


VICIS CAPITAL MASTER FUND


 


DATED August 8, 2008


 

















 


SECURITIES PURCHASE AGREEMENT


 


This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated this 8th
day of August, 2008, is made by and between ANDOVER MEDICAL, INC., a Delaware
corporation (the “Company”), and VICIS CAPITAL MASTER FUND (the “Purchaser”), a
series of the Vicis Capital Master Trust, a trust formed under the laws of the
Cayman Islands.


 


R E C I T A L S


 


WHEREAS, pursuant to the terms and conditions of this Agreement, the
Company wishes to issue and sell to the Purchaser the following securities
(collectively, the “Securities”): (a) 1,000 shares (the “Preferred Shares”)
of the Company’s Series E Convertible Preferred Stock, par value $.001 per
share (the “Series E Preferred Stock”), with such terms, rights and
preferences as are set forth in the Certificate of Designation for the Series E
Preferred Stock set forth on Exhibit A attached hereto; (b) a Series F
Warrant to purchase an aggregate of 8,571,429 shares of common stock, par value $.001 per
share (the “Common Stock”), of the Company initially at an exercise price of
$0.35 per share in the form attached hereto as Exhibit B (the “Series F
Warrant”); (c) a Series G Warrant to purchase an aggregate of 2,857,143 shares of common
stock, par value $.001 per share (the “Common Stock”), of the Company initially
at an exercise price of $0.40 per share in the form attached hereto as Exhibit C
(the “Series G Warrant”); (b) a Series H Warrant to purchase an
aggregate of 2,857,143 shares of common stock, par value $.001 per share (the “Common Stock”),
of the Company initially at an exercise price of $0.45 per share in the form
attached hereto as Exhibit D (the “Series H Warrant”, and
together with the Series F Warrant and the Series G Warrant, each a “Warrant”
and collectively, the “Warrants”).


 


WHEREAS, the Purchaser desires to purchase such Securities from the
Company according to the terms hereinafter set forth.


 


NOW, THEREFORE,  the Company and the Purchaser hereby agree as
follows:


 


ARTICLE
I

PURCHASE AND SALE OF THE SECURITIES


 


1.1                               Purchase and Sale of the Securities.  Subject to the terms and conditions hereof
and in reliance on the representations and warranties contained herein, or made
pursuant hereto, the Company will issue and sell to the Purchaser, and the
Purchaser will purchase from the Company at the closing of the transactions
contemplated hereby (the “Closing”), the Securities for $1,000,000 (the “Purchase
Price”) in cash.


 


1.2                               Closing.  The Closing shall be deemed to occur at the
offices of Quarles & Brady, LLP, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin, at 5:00 p.m. CDT on August 8, 2008, or at such other
place, date or time as mutually agreeable to the parties (the “Closing Date”).


 


1.3                               Closing Matters. On the Closing
Date, subject to the terms and conditions hereof, the following actions shall
be taken:


 

















 


(a)                                  The Company, against delivery of payment of the Purchase Price in
accordance with Section 1.3(b), will deliver to the Purchaser the
documents set forth in Section 4.4 hereof.


 


(b)                                 The Purchaser shall deliver to the Company the Purchase Price, subject
to the fee owed to Purchaser pursuant to Section 10.9 hereof, in
immediately available funds by wire transfer of immediately available funds in
accordance with the instructions of the Company.


 


1.4                               Most Favored Nations Exchange.   If the Company completes a
private equity or equity-linked financing at any time while any share of Series E
Preferred Stock is outstanding, the Purchaser will have the right to exchange
all or any such shares at their stated value, plus all accrued but unpaid
dividends thereon, for securities in such financing.


 


1.5                               Subsequent Financings.


 


(a)                                  Other than in connection with a Permitted Financing (defined
below),  for the twelve-month period
following the Closing Date, the Purchaser shall have the right to participate  up to 100% of each such subsequent financing that involves
the sale of securities of the Company (each such financing, a “Subsequent
Financing”).  At least 10 days prior to the making or accepting of an
offer for a Subsequent Financing, the Company shall deliver to the Purchaser a
written notice of its intention to effect a Subsequent Financing and the
details of such Subsequent Financing (a “Subsequent Financing Notice”). The
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be
raised thereunder and the Person with whom such Subsequent Financing is
proposed to be effected, and shall include, as an attachment thereto, a term
sheet or similar document relating thereto, if any exists.    If
the Purchaser elects to participate in the Subsequent Financing, the closing of
such Subsequent Financing shall be as mutually agreed between the parties
participating in such Subsequent Financing. 
If by 6:30 p.m. (Eastern Time) on the tenth day after the Purchaser
has received the Subsequent Financing Notice, the Purchaser fails to notify the
Company of its election to participate or elects to participate in an amount
that is less than the total amount of the Subsequent Financing, then the
Company may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing Notice. 
The Company must provide the Purchaser with a second Subsequent Financing
Notice, and the Purchaser will again have the right of participation set forth
above in this Section 1.5(a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 90 days after the
date of the initial Subsequent Financing Notice.


 


(b)                                 Notwithstanding the foregoing, Section 1.5(a) shall not apply
in respect to the issuance of the following (each, a “Permitted Financing”):  (i) shares of Common Stock or Common
Stock options, warrants or other rights to purchase Common Stock issued to
employees, officers, directors, consultants or advisors of the Company pursuant
to any stock, option, equity incentive or similar plan duly adopted by the
Board of Directors of the Company or shares of Common Stock issued upon
exercise of any option or warrant or conversion of any convertible security
issued pursuant to any stock, option, equity incentive or similar plan duly
adopted by the Board of Directors of the Company, (ii) securities issued
upon the exercise of or conversion of any securities issued pursuant to this
Agreement, (iii) Common Stock issued upon 


 


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the exercise or conversion of options, warrants,
preferred stock or convertible debt instruments issued and outstanding on the
date of this Agreement; provided that, such securities have not been amended
since the date of this Agreement (A) to increase the number of such
securities or underlying Common Stock or (B) to decrease the exercise or
conversion price of any such security, (iv) Common Stock issued or
issuable to financial institutions, or lessors, pursuant to a commercial credit
arrangement, equipment financing transaction, accounts receivable factoring, or
a similar transaction, or (v) securities issued pursuant to mergers,
acquisitions or strategic transactions, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include an issuance or transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.


 


1.6                                 Company Security Agreement.  All of the obligations of the
Company under the Preferred Shares shall be secured by a lien on all the
personal property and assets of the Company now existing or hereinafter
acquired granted pursuant to that certain Security Agreement dated March 28,
2008 between the Company and the Purchaser (the “Security Agreement”).  The parties acknowledge and agree that the
term “Obligations” as defined in the Security Agreement, includes all
obligations of the Company to the Purchaser, including without limitation,
those obligations of the Company under the Series E Preferred Stock and
Transaction Documents (as defined below).


 


ARTICLE
II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY


 


The Company hereby represents and warrants to
the Purchaser as of the date of this Agreement as follows:


 


2.1                               Organization and Qualification.  The Company is a corporation duly organized
and validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, and has all requisite corporate power and authority
to carry on its business as now conducted.  
The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations, or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations in all material respects under the Transaction Documents (as
defined in Section 2.6 hereof).


 


2.2                               Subsidiaries.  The Company has no subsidiaries other than as
disclosed on Schedule 2.2 attached hereto (each a “Subsidiary”, and
collectively, the “Subsidiaries’).  The
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary, free and clear of any and all liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights.  Each 


 


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Subsidiary is a corporation duly organized and validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, and has all requisite corporate power and authority to carry on
its business as now conducted.   Each
Subsidiary is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect.


 


2.3                               Compliance.


 


(a)                                  Except as disclosed in Schedule 2.3(a) attached hereto,
either the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or
any Subsidiary under), nor has the Company or any Subsidiary received notice of
a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, except
such that, individually or in the aggregate, such default(s) and
violations(s) would not have a Material Adverse Effect, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii) is
in violation of any of the provisions of its certificate or articles of
incorporation, bylaws or other organizational or charter documents.


 


(b)                                 The business of the Company and each Subsidiary is presently being
conducted in accordance with all applicable foreign, federal, state and local
governmental laws, rules, regulations and ordinances (including, without
limitation, rules and regulations of each governmental and regulatory
agency, self regulatory organization and Trading Market applicable to the
Company or any Subsidiary), except such that, individually or in the aggregate,
the noncompliance therewith would not have a Material Adverse Effect.  The Company has all franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by
it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, would not have a Material Adverse Effect, and the Company
has not received any written notice of proceedings relating to the revocation
or modification of any of the foregoing.  
For purposes of this Agreement, “Trading Market” means the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE Arca, OTC Bulletin Board, the American Stock
Exchange, the New York Stock Exchange, the Nasdaq Global Select Market, Nasdaq
Global Market or the Nasdaq Capital Market.


 


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2.4                               Capitalization.


 


(a)                                  The authorized capital stock of the Company, the number of shares of
such capital stock issued and outstanding, and the number of shares of capital
stock reserved for issuance upon the exercise or conversion of all outstanding
warrants, stock options, and other securities issued by the Company, as of the
date hereof, are set forth on Schedule 2.4(a) attached
hereto.  All of such outstanding shares
have been, or upon issuance will be, validly issued, are fully paid and
nonassessable.


 


(b)                                 Except for the Securities, or as disclosed in Schedule 2.4(b) attached
hereto:


 


(i)                                     no holder of shares of the Company’s capital stock has any preemptive
rights or any other similar rights or has been granted or holds any Liens or
encumbrances suffered or permitted by the Company;


 


(ii)                                  there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any shares of
capital stock of the Company or any Subsidiary, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of capital stock of the Company or any
Subsidiary or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any Subsidiary;


 


(iii)                               there are no outstanding debt securities, notes, credit agreements,
credit facilities or other agreements, documents or instruments evidencing
Indebtedness (as defined in Section 2.13 hereof) of the Company or any
Subsidiary in excess of $100,000 or by which the Company or any Subsidiary is
or may become bound and involves Indebtedness in excess of $100,000;


 


(iv)                              there are no financing statements securing obligations in any material
amounts, either singly or in the aggregate, filed in connection with the
Company or its Subsidiaries;


 


(v)                                 there are no agreements or arrangements under which the Company or any
Subsidiary is obligated to register the sale of any of their securities under
the Securities Act of 1933, as amended (the “Securities Act”);


 


(vi)                              there are no outstanding securities or instruments of the Company or any
Subsidiary that contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to redeem a security of the Company or a
Subsidiary;


 


(vii)                           there are no securities or instruments containing antidilution or
similar provisions that will be triggered by the issuance of the Securities;
and


 


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(viii)                        the Company does not have any stock appreciation rights or “phantom
stock” plans or agreements or any similar plan or agreement.


 


2.5                               Issuance of Securities.


 


(a)                                  The Securities to be issued hereunder are duly authorized and, upon
payment and issuance in accordance with the terms hereof, shall be free from
all taxes, Liens and charges with respect to the issuance thereof. As of the
Closing Date, the Company has authorized and has reserved free of preemptive
rights and other similar contractual rights of stockholders, a number of its
authorized but unissued shares of Common Stock equal to one hundred percent
(100%) of the aggregate number of shares of Common Stock to effect the
conversion of the Preferred Shares (the “Conversion Shares”) and one hundred
percent (100%) of the aggregate number of shares of Common Stock to effect the
exercise of the Warrants (the “Warrant Shares”).


 


(b)                                 The Conversion Shares and Warrant Shares, when issued and paid for upon
conversion of the Preferred Shares and exercise of the Warrants, as the case
may be, will be validly issued, fully paid and nonassessable and free from all
taxes, Liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of the Common Stock.


 


(c)                                  Assuming the accuracy of each of the representations and warranties made
by the Purchaser and set forth in Article III hereof (and assuming no
change in applicable law and no unlawful distribution of the Securities by the
Purchaser or other Persons), the issuance by the Company to the Purchaser of
the Securities is exempt from registration under the Securities Act.


 


2.6                               Authorization; Enforcement; Validity.
The Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Certificate of Designation
for the Series E Preferred Stock, and the Warrants, and each of the other
agreements or instruments entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to issue
the Securities (including without limitation, the Conversion Shares and Warrant
Shares) in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Preferred Shares and the Warrants, have
been duly authorized by the Board, and no further consent or authorization is
required by the Company, the Board or its stockholders. This Agreement and the
other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws of general application affecting enforcement of creditors’ rights
and remedies generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law or by principles of public policy thereunder.


 


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2.7                               Dilutive Effect. The Company
understands and acknowledges that its obligation to issue the Conversion Shares
and Warrant Shares upon conversion of the Preferred Shares and exercise of the
Warrants, as the case may be, is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.


 


2.8                               No Conflicts. The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance of the Conversion
Shares and Warrant Shares) will not (i) result in a violation of any
articles or certificate of incorporation, any certificate of designation,
preferences and rights of any outstanding series of preferred stock or bylaws
of the Company or any Subsidiary or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any Subsidiary is a party (except where such
defaults, conflicts, rights of termination, amendment, acceleration or
cancellation have been waived or postponed until the fulfillment of the Company’s
obligations under the Transaction Documents), or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and rules and regulations of any governmental or any
regulatory agency, self-regulatory organization, or Trading Market applicable
to the Company) or by which any property or asset of the Company are bound or
affected, except in the case of clauses (ii) and (iii), for such breaches,
violations or defaults as would not be reasonably expected to have a Material
Adverse Effect.


 


2.9                               Governmental Consents.
Except for (i) filings required under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) to disclose the existence of the transactions
contemplated by this Agreement, (ii) the filing of a registration
statement pursuant to the Registration Rights Agreement (as defined in Section 2.6),
(iii) application(s) to each Trading Market for the listing of the
Conversion Shares and Warrant Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission
and such filings as are required to be made under applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court, governmental or any
regulatory agency, self-regulatory organization or any other Person (as defined
in Section 2.13) in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each case,
in accordance with the terms hereof or thereof. The Company is unaware of any
facts or circumstances relating to the Company or its Subsidiaries which might
prevent the Company from obtaining or effecting any of the foregoing.


 


2.10                         Registration and Approval of Sale of Securities.  Based in material part upon the
representations and warranties herein (and in the other Transaction Documents)
of the Purchaser, the Company has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance and
sale of the Securities hereunder (except in the case of state securities laws,
for any failures to comply that, individually or in the aggregate, will not
have a Material Adverse Effect). 
Assuming the accuracy of the representations and warranties in Article III
hereof (and assuming no change in applicable law and no unlawful distribution
of the 


 


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Securities by the Purchaser or other Persons), no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchaser as is contemplated hereby. Neither
the Company nor any Person acting on its behalf, directly or indirectly, has or
will sell, offer to sell or solicit offers to buy any of the Securities or
similar securities to, or solicit offers with respect thereto from, or enter
into any negotiations relating thereto with, any Person, or has taken or will
take any action so as to either (a) bring the issuance and sale of any of
the Securities under the registration provisions of the Securities Act or
applicable state securities laws, or (b) trigger shareholder approval
provisions under the rules or regulations of any Trading Market.  Neither the Company nor any of its affiliates
that it controls, nor any Person acting on its or their behalf, has: (x) engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Securities Act) in connection with the offer or sale
of any of the Securities; or (y) directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act in a manner that would prevent the Company from selling the
Securities pursuant to Regulation D and Rule 506 thereof under the
Securities Act, nor will the Company or any of its affiliates that it controls
or Persons acting on its or their behalf engage in any form of general
solicitation or take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.


 


2.11                         Placement Agent’s Fees.  No brokerage or finder’s fee or commission
are or will be payable to any Person with respect to the transactions
contemplated by this Agreement based upon arrangements made by the Company or
any of its affiliates.  The Company
agrees that it shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or brokers’ commissions (other than for Persons
engaged by the Purchaser or any of its affiliates) relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold the
Purchaser harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim for any such fees or commissions.


 


2.12                         Litigation.  Except as disclosed in Schedule 2.12
attached hereto or as disclosed in the SEC Documents (as defined in Section 2.14),
there is no action, suit, written notice of violation, or written notice of any
proceeding pending or, to the knowledge of the Company, threatened against or
affecting the Common Stock or the Company, any Subsidiary or any of their
respective executive officers, directors or properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority  (federal, state, county, local or foreign),
self regulatory authority or Trading Market 
(collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) would, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect.  To the Company’s knowledge,
neither the Company nor any Subsidiary, nor any director or executive officer
thereof (in his/her capacity as such), is or, within the last five years, has
been the subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of fiduciary
duty.  To the knowledge of the Company,
there has not been, and there is not pending or threatened in writing, any
investigation by the United States Securities and Exchange Commission (the “Commission”
or “SEC”) involving the Company or any current director or executive officer of
the Company.  The Commission has not
issued any stop order or other order 


 


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suspending the effectiveness of any registration
statement filed by the Company under the Exchange Act or the Securities
Act.  There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened in writing
against or involving the Company or any of its properties or assets, which
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.  There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
executive officers or directors of the Company in their capacities as such,
which individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.


 


2.13                         Indebtedness and Other Contracts.
Except as disclosed in Schedule 2.13 attached hereto or as disclosed in
the SEC Documents, neither the Company nor any Subsidiary (a) has any
outstanding Indebtedness (as defined below in this Section 2.13), (b) is
a party to any contract, agreement or instrument, the violation of which, or
default under, by any other party to such contract, agreement or instrument
would result in a Material Adverse Effect, (c) is in violation of any term
of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (d) is
a party to any contract, agreement or instrument relating to any Indebtedness,
the performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. 
For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (v) all indebtedness created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in either
case with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of such
property), (vi) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (vii) all indebtedness referred to in clauses (i) through
(vi) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any mortgage, Lien,
pledge, change, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above; (y) ‘Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness,
lease, dividend or other obligation of another Person if the primary purpose or
intent of the Person incurring such liability, or the primary effect thereof,
is to provide assurance to the obligee of such liability that such liability
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in
whole or in part) against loss with respect thereto; and (z) “Person” means 


 


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an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.


 


2.14                         Financial Information; SEC Documents.  The Company has filed all reports required to
be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, since August 31, 2006 (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the “SEC
Documents”)  on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension.  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no representation as
to the information included in any SEC Documents prepared by third parties and
included therein, and the Company makes no representation as to the accuracy of
information contained in third party studies and reports cited in the SEC
Documents.  Each registration statement
and any amendment thereto filed by the Company since August 31, 2006,
pursuant to the Securities Act and the rules and regulations thereunder,
as of the date such statement or amendment became effective, complied as to
form in all material respects with the Securities Act and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein
not misleading; provided, however, that the Company makes no representation as
to the information included in any SEC Documents prepared by third parties and
included therein, and the Company makes no representation as to the accuracy of
information contained in third party studies and reports cited in the SEC
Documents; and each prospectus filed pursuant to Rule 424(b) under
the Securities Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representation as to the information included in any
SEC Documents prepared by third parties and included therein and the Company
makes no representation as to the accuracy of information contained in third
party studies and reports cited in the SEC Documents. The financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as
may be otherwise specified in such financial statements or the notes thereto
and except that unaudited financial statements may not contain all footnotes
required by GAAP and remain subject to year end adjustments, and fairly present
in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments.


 


10

















 


2.15                         Absence of Certain Changes or Developments.  Except as disclosed in Schedule
2.15 attached hereto or as disclosed in the SEC Documents or as
contemplated herein and in the Transaction Documents, since September 30,
2007:


 


(a)                                  there has been no Material Adverse Effect, and no event or circumstance
has occurred or exists with respect to the Company or its businesses,
properties, operations or financial condition, which, under the Exchange Act,
Securities Act, or rules or regulations of any Trading Market, requires
public disclosure or announcement by the Company, but which has not been so
publicly announced or disclosed;


 


(b)                                 the Company has not:


 


(i)                                     issued any stock, bonds or other corporate securities or any right,
options or warrants with respect thereto, except pursuant to the exercise or
conversion of securities outstanding as of such date;


 


(ii)                                  borrowed any amount in excess of $250,000 or incurred or become subject
to any other liabilities in excess of $250,000 (absolute or contingent) except
current liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the business of
the Company;


 


(iii)                               discharged or satisfied any Lien or encumbrance in excess of $250,000 or
paid any obligation or liability (absolute or contingent) in excess of
$250,000, other than current liabilities paid in the ordinary course of
business and payments of principal for any already completed acquisition;


 


(iv)                              declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made
any agreements so to purchase or redeem, any shares of its capital stock, in
each case in excess of $50,000 individually or $100,000 in the aggregate;


 


(v)                                 sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, in each case in excess of $250,000, except in the ordinary
course of business;


 


(vi)                              sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights in excess of $250,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business;


 


(vii)                           suffered any material losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;


 


(viii)                        made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;


 


11

















 


(ix)                                made capital expenditures or commitments therefor that aggregate in
excess of $250,000;


 


(x)                                   entered into any material transaction, whether or not in the ordinary
course of business that has not been disclosed in the SEC Documents;


 


(xi)                                made charitable contributions or pledges in excess of $10,000;


 


(xii)                             suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;


 


(xiii)                          experienced any material problems with labor or management in connection
with the terms and conditions of their employment;


 


(xiv)                         altered its method of accounting, except to the extent required by GAAP;


 


(xv)                            issued any equity securities to any officer, director or affiliate (as
such term is defined in Rule 144 of the Securities Act), except pursuant
to existing Company stock, option, equity incentive or similar incentive plans;
or


 


(xvi)                         entered into an agreement, written or otherwise, to take any of the
foregoing actions.


 


2.16                         Solvency.  The Company has not taken, nor does it have
any intention to take, any steps to seek protection pursuant to any bankruptcy
or similar law.  The Company does not
have any actual knowledge nor has it received any written notice that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact that, as of the date hereof, would reasonably lead a
creditor to do so. After giving effect to the transactions contemplated hereby
to occur at the Closing, the Company will not be Insolvent (as hereinafter
defined). For purposes of this Agreement, “Insolvent” means (i) the present fair saleable value of the
Company’s assets is less than the amount required to pay the Company’s total
Indebtedness, contingent or otherwise, (ii) the Company is unable to pay
its debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, (iii) the Company intends to
incur or believes that it will incur debts that would be beyond its ability to
pay as such debts mature or (iv) the Company has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.


 


2.17                         Off-Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off-balance
sheet entity that is required to be disclosed by the Company in its Exchange
Act filings and is not so disclosed or that if made or not made would be
reasonably likely to have a Material Adverse Effect.


 


2.18                         Foreign Corrupt Practices.  None of the Company, any Subsidiary, nor any
of their respective directors, officers, agents, employees or other Persons
acting on behalf of such subsidiaries has, in the course of their respective
actions for or on behalf of the Company or any of its subsidiaries (a) used
any corporate funds for any unlawful contribution, gift, entertainment 


 


12

















 


or other unlawful expenses relating to political
activity, (b) made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds, (c) violated
or is in violation of any provision of the U.S. Foreign Corrupt Practices Act
of 1977, as amended or (d) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.


 


2.19                         Transactions With Affiliates.  Except as set forth in the SEC Documents or
as disclosed in Schedule 2.19 attached hereto, none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for ordinary course services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.


 


2.20                         Insurance.   Except as disclosed in Schedule 2.20
attached hereto, the Company and each Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company and each Subsidiary are engaged. Neither
the Company nor any Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect.


 


2.21                         Employee Relations.  Neither the Company nor any Subsidiary is a
party to any collective bargaining agreement or employs any member of a union.
No Executive Officer of the Company (as defined in Rule 501(f) of the
Securities Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer’s employment with the Company. No
Executive Officer of the Company, to the knowledge of the Company, is, or is
now, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and, to the actual knowledge of the Company, the
continued employment of each such executive officer does not subject the
Company or any Subsidiary to any liability with respect to any of the foregoing
matters. The Company and each Subsidiary are in compliance with all federal,
state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.


 


2.22                         Title.  Except as set forth in the SEC Documents or Schedule
2.22, the Company and each Subsidiary have good and marketable title to all
personal property owned by them which is material to their respective business,
in each case free and clear of all Liens. Any real property and facilities held
under lease by the Company or any Subsidiary are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not 


 


13

















 


interfere with the use made and proposed to be made of
such property and buildings by the Company or any Subsidiary.


 


2.23                         Intellectual Property Rights.  The Company and its Subsidiaries own or
possess the rights to use all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations which are necessary
for the conduct of its business as now conducted (collectively, the “Intellectual
Property Rights”) without any conflict with the rights of others, except any
failures as, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect.  Neither
the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. 
To the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of any
of the Intellectual Property Rights. The Company and its Subsidiaries have
taken reasonable measures to protect the value of the Intellectual Property
Rights.


 


2.24                         Environmental Laws.  The Company and each of its Subsidiaries (a) are
in compliance with any and all Environmental Laws (as hereinafter defined), (b) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (c) are
in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (a), (b) and (c), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term “Environmental Laws” means
all federal, state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.


 


2.25                         Tax Matters.  The Company and each of its Subsidiaries (a) have
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (b) have
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (c) have set
aside on its books reasonably adequate provision for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply, except where such failure would not have a Material Adverse
Effect. There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.


 


2.26                         Sarbanes-Oxley Act; Internal
Accounting and Disclosure Controls. 
The Company is in compliance in all material respects with the
requirements of the Sarbanes-Oxley Act of 2002 


 


14

















 


that are effective as of the date hereof and
applicable to it, and any and all rules and regulations promulgated by the
SEC thereunder that are effective and applicable to it as of the date
hereof.  The Company maintains a system
of internal accounting controls sufficient, in the judgment of the Company’s
board of directors, to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
significant changes in the Company’s internal controls (as such term is defined
in Item 307(c) of Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls.  The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with United States GAAP and the
applicable requirements of the Exchange Act.


 


2.27                         Investment Company Status.  The Company is not, and immediately after
receipt of payment for the Securities will not be, an “investment company,” an “affiliated
person” of, “promoter” for or “principal underwriter” for, or an entity “controlled”
by an “investment company,” within the meaning of the Investment Company Act.


 


2.28                         Material Contracts.  Each contract of the Company that involves
expenditures or receipts in excess of $500,000 (each, a “Material Contract”) is
in full force and effect and is valid and enforceable in accordance with its
terms. The Company is and has been in material compliance with all applicable
terms and requirements of each Material Contract and no event has occurred or
circumstance exists that (with or without notice or lapse of time) may contravene,
conflict with or result in a violation or breach of, or give the Company or any
other entity the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate or modify
any Material Contract. The Company has not given or received from any other
Person any notice or other communication (whether oral or written) regarding
any actual, alleged, possible or potential violation or breach of, or default
under, any Material Contract.


 


2.29                         Inventory.  All inventory of the Company consists of a
quality and quantity usable and salable in the ordinary course of business,
except for obsolete items and items of below-standard quality, all of which
have been or will be written off or written down to net realizable 


 


15

















 


value on the unaudited consolidated balance sheet of
the Company and its Subsidiaries as of September 30, 2007.  The quantities of each type of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable and warranted in the present circumstances of the Company.


 


2.30                         No Disagreements with Accountants.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants
formerly or presently employed by the Company.


 


2.31                         Ranking of Series D Preferred Stock.  No capital stock of the Company is senior to
the Series E Preferred Stock in right of payment, whether with respect of
payment of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.


 


2.32                         Manipulation of Price.  The Company has not, and to its knowledge no
one acting on its behalf has, taken, directly or indirectly, any action designed
to cause or to result or that could reasonably be expected to cause or result,
in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities.


 


2.33                         Listing and Maintenance Requirements.   The Company has not, in the 12 months
preceding the date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading
Market. The Company is in compliance with all such maintenance requirements.


 


2.34                         Application of Takeover Protections.  The Company and its Board of Directors have
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation (exclusive of Section 203 of the
Delaware General Corporation Law which is currently inapplicable to the
Company) that is or could become applicable to the Purchaser as a result of the
Purchaser and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and the Purchaser’s ownership of the
Securities.


 


2.35                         Disclosure. All written disclosure provided to the Purchaser regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company are true
and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; provided however, the Company makes no representation as to studies
and reports prepared by third parties not engaged by the Company and included
in the materials delivered to Purchaser.


 


16

















 


ARTICLE
III

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER


 


The Purchaser hereby represents and warrants to the Company as of the
date of this Agreement as follows:


 


3.1                               Organization; Authority.  The Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by the Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of the Purchaser. 
Each Transaction Document to which it is a party has been duly executed
by the Purchaser, and when delivered by the Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.


 


3.2                               Own Account.  The Purchaser understands that the Securities
are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof except in compliance with the
Securities Act, has no present intention of distributing any of such Securities
and has no arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not limiting
the Purchaser’s right to sell the Securities pursuant to a Registration
Statement (defined below) or otherwise in compliance with applicable federal
and state securities laws), except in compliance with the Securities Act. The
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business. The Purchaser does not have any agreement or understanding, directly
or indirectly, with any Person to distribute any of the Securities.


 


3.3                               Purchaser Status.  At the time the Purchaser was offered the
Securities, it was, and at the date hereof it is, either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in
Rule 144A(a) under the Securities Act.


 


3.4                               Experience of Such Purchaser.  The Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.  The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.


 


3.5                               General Solicitation.  The Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.


 


17
















 


ARTICLE IV

CONDITIONS TO CLOSING OF THE PURCHASER


 


The obligation of the Purchaser to purchase
the Securities at the Closing is subject to the fulfillment to the Purchaser’s
satisfaction on or prior to the Closing Date of each of the following
conditions, any of which may be waived by such Purchaser:


 


4.1                               Representations and Warranties Correct.  The representations and warranties in Article II
hereof shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date.


 


4.2                               Performance.  All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with by the
Company in all material respects.


 


4.3                               No Impediments.  Neither the Company nor the Purchaser shall
be subject to any order, decree or injunction of a court or administrative
agency of competent jurisdiction that prohibits the transactions contemplated
hereby or would impose any material limitation on the ability of such Purchaser
to exercise full rights of ownership of the Securities.  At the time of the Closing, the purchase of
the Securities to be purchased by the Purchaser hereunder shall be legally
permitted by all laws and regulations to which the Purchaser and the Company
are subject.


 


4.4                               Other Agreements and Documents.  The Company shall have delivered the
following agreements and documents:


 


(a)                                  Certificates, registered in the name of the Purchaser, representing the
Preferred Shares;


 


(b)                                 The Series F Warrant, Series G Warrant and Series H
Warrant in the forms of Exhibit B, Exhibit C, and Exhibit D,
respectively, attached hereto, duly executed by the Company;


 


(c)                                  An opinion of counsel to the Company, dated the date of the Closing,
substantially in the form of Exhibit E hereto, with such exceptions
and limitations as shall be reasonably acceptable to counsel to the Purchaser;


 


(d)                                 A Certificate of Good Standing from the state of incorporation of the
Company and each Subsidiary; and


 


(e)                                  A certificate of the Company’s CEO, dated the Closing Date, certifying (i) the
fulfillment of the conditions specified in Sections 4.1 and 4.2 of this
Agreement, (ii) the Board resolutions approving this Agreement and the
transactions contemplated hereby, and (iii) other matters as the Purchaser
shall reasonably request.


 


4.5                               Certificate of Designation.  The Company shall have filed the Certificate
of Designation for the Series E Preferred Stock in the form attached
hereto as Exhibit A with the Delaware Secretary of State.


 


18

















 


4.6                               Trading Markets.  The listing or trading of the Conversion
Shares and Warrant Shares on each Trading Market shall have been approved by
such Trading Market authority.


 


4.7                               Due Diligence Investigation.  No fact shall have been discovered, whether
or not reflected in the Schedules hereto, which in the Purchaser’s
determination would make the consummation of the transactions contemplated by
this Agreement not in the Purchaser’s best interests.


 


ARTICLE
V

CONDITIONS TO CLOSING OF THE COMPANY


 


The Company’s obligation to sell the Securities at the Closing is
subject to the fulfillment to its satisfaction on or prior to the Closing Date
of each of the following conditions:


 


5.1                               Representations.  The representations made by the Purchaser
pursuant to Article III hereof shall be true and correct when made and
shall be true and correct on the Closing Date.


 


5.2                               No Impediments.  Neither the Company nor the Purchaser shall
be subject to any order, decree or injunction of a court or administrative
agency of competent jurisdiction that prohibits the transactions contemplated
hereby or would impose any material limitation on the ability of the Purchaser
to exercise full rights of ownership of the Securities.  At the time of the Closing, the purchase of
the Securities to be purchased by the Purchaser hereunder shall be legally
permitted by all laws and regulations to which the Purchaser and the Company
are subject.


 


ARTICLE
VI

AFFIRMATIVE COVENANTS


 


The Company hereby covenants and agrees, so
long as any Preferred Share remains outstanding, as follows:


 


6.1                               Maintenance of Corporate Existence.  The Company shall and shall cause its subsidiaries
to, maintain in full force and effect its corporate existence, rights and
franchises and all material terms of licenses and other rights to use licenses,
trademarks, trade names, service marks, copyrights, patents or processes owned
or possessed by it and necessary to the conduct of its business, except where
the failure to maintain such corporate existence, rights, franchises, licenses
and rights to use licenses, trademarks, trade names, service marks, copyrights,
patents or processes would not (a) result in a Material Adverse Effect or (b) materially
adversely affect the rights of Purchaser under any Transaction Document.


 


6.2                               Maintenance of Properties.  The Company shall and shall cause its
subsidiaries to, keep each of its properties necessary to the conduct of its
business in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company shall and shall
cause its subsidiaries to at all times comply with each material provision of
all material leases to which it is a party or under which it occupies property.


 


19

















 


6.3                               Payment of Taxes.  The Company shall and shall cause its
subsidiaries to, promptly pay and discharge, or cause to be paid and discharged
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, assets, property or business of the
Company and its subsidiaries; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall be contested
timely and in good faith by appropriate proceedings, if the Company or its
subsidiaries shall have set aside on its books adequate reserves with respect
thereto, and the failure to pay shall not be prejudicial in any material
respect to the holders of the Securities, and provided, further, that the
Company or its subsidiaries will pay or cause to be paid any such tax,
assessment, charge or levy forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security therefor.


 


6.4                                 Payment of Indebtedness.  The Company shall, and shall cause its
subsidiaries to, pay or cause to be paid when due all Indebtedness incident to
the operations of the Company or its subsidiaries (including, without
limitation, claims or demands of workmen, materialmen, vendors, suppliers,
mechanics, carriers, warehousemen and landlords) which, if unpaid might become
a Lien (except for Permitted Liens) upon the assets or property of the Company
or its subsidiaries, except where the Company (or its subsidiary, as the case
may be) disputes the payment of such Indebtedness in good faith by appropriate
proceedings.


 


6.5                               Reservation of Common Stock.  The Company shall continue to reserve, free
of preemptive rights and other similar contractual rights of stockholders, a
number of its authorized but unissued shares of Common Stock not less than one
hundred percent (100%) of the aggregate number of shares of Common Stock to
effect the conversion of the Preferred Shares and one hundred percent (100%) of
the aggregate number of shares of Common Stock to effect the exercise of the
Warrant.


 


6.6                               Maintenance of Insurance.  The Company shall and shall cause its
subsidiaries to, keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by theft, fire,
explosion and other risks customarily insured against by companies in the line
of business of the Company or its subsidiaries, in amounts sufficient to
prevent the Company and its subsidiaries from becoming a co-insurer of the
property insured; and the Company shall and shall cause its subsidiaries to maintain,
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated or as may be
required by law, including, without limitation, general liability, fire and
business interruption insurance, and product liability insurance as may be
required pursuant to any license agreement to which the Company or its
subsidiaries is a party or by which it is bound.


 


6.7                               Notice of Adverse Change.  The Company shall promptly give notice to all
holders of any Securities (but in any event within seven (7) days) after
becoming aware of the existence of any condition or event which constitutes, or
the occurrence of, any of the following:


 


(a)                                  any event of noncompliance by the Company or its subsidiaries under this
Agreement in any material respect;


 


20

















 


(b)                                 the institution of an action, suit or proceeding against the Company or
any subsidiary before any court, administrative agency or arbitrator,
including, without limitation, any action of a foreign government or
instrumentality, which, if adversely decided, would result in a Material
Adverse Effect whether or not arising in the ordinary course of business;


 


(c)                                  any information relating to the Company or any subsidiary which would
reasonably be expected to result in a material adverse effect on its inability
to perform its obligations of under any Transaction  Document; or


 


(d)                                 if the Company will not be able
to pay its monthly rent when due under any of its leases  (“Leases”) for real
property  (beyond any notice and cure period set
forth in the applicable Lease) or the  Company has received from its landlord under any Lease,  notice of an Event of Default  (as defined in the applicable Lease) and the notice and cure period
therefor has expired.


 


Any notice given under this Section 6.7
shall specify the nature and period of existence of the condition, event,
information, development or circumstance, the anticipated effect thereof and
what actions the Company has taken and/or proposes to take with respect
thereto.


 


6.8                               Compliance With Agreements.  The Company shall and shall cause its
subsidiaries to comply in all material respects, with the terms and conditions
of all material agreements, commitments or instruments to which the Company or
any of its subsidiaries is a party or by which it or they may be bound.


 


6.9                               Other Agreements.  The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company under any Transaction Document.


 


6.10                         Compliance With Laws.  The Company shall and shall cause each of its
subsidiaries to duly comply in all material respects with any material laws,
ordinances, rules and regulations of any foreign, federal, state or local
government or any agency thereof, or any writ, order or decree, and conform to
all valid requirements of governmental authorities relating to the conduct of
their respective businesses, properties or assets.


 


6.11                         Protection of Licenses, etc.  The Company shall and shall cause its
subsidiaries to, maintain, defend and protect to the best of their ability
licenses and sublicenses (and to the extent the Company or a subsidiary is a
licensee or sublicensee under any license or sublicense, as permitted by the
license or sublicense agreement), trademarks, trade names, service marks,
patents and applications therefor and other proprietary information owned or
used by it or them, (except where the failure to defend and protect such
licenses and sublicenses would not (a) result in a Material Adverse Effect
or (b) materially adversely affect the rights of Purchaser under any
Transaction Document) and shall keep duplicate copies of any licenses,
trademarks, service marks or patents owned or used by it, if any, at a secure
place selected by the Company.


 


21

















 


6.12                         Accounts and Records; Inspections.


 


(a)                                  The Company shall keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to the business and affairs of the Company and its subsidiaries in
accordance with GAAP applied on a consistent basis.


 


(b)                                 The Company shall permit each holder of any Securities or any of such
holder’s officers, employees or representatives during regular business hours
of the Company, upon reasonable notice and as often as such holder may
reasonably request, to visit and inspect the offices and properties of the
Company and its subsidiaries and to make extracts or copies of the books,
accounts and records of the Company or its subsidiaries at such holder’s
expense.


 


(c)                                  Nothing contained in this Section 6.12 shall be construed to limit
any rights which a holder of any Securities may otherwise have with respect to
the books and records of the Company and its subsidiaries, to inspect its
properties or to discuss its affairs, finances and accounts.


 


6.13                         Maintenance of Office.  The Company will maintain its principal
office at the address of the Company set forth in Section 10.6 of this
Agreement where notices, presentments and demands in respect of this Agreement
and any of the Securities may be made upon the Company, until such time as the
Company shall notify the holders of the Securities in writing, at least thirty
(30) days prior thereto, of any change of location of such office.


 


6.14                         Payment of the Preferred Share Dividends.  The Company shall pay the dividends on, and
redeem, the Preferred Shares, in the time, the manner and the form as provided
in the Certificate of Designation for the Series E Preferred Stock.


 


6.15                         SEC Reporting Requirements.  For so
long as the Purchaser beneficially owns any of the Securities, and until such
time as all the Conversion Shares and Warrant Shares are saleable by the
Purchaser without restriction as to volume or manner of sale under Rule 144
under the Securities Act, the Company shall timely file all reports required to
be filed with the Commission pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. 
As long as the Purchaser owns Securities, Conversion Shares or Warrant
Shares, the Company will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144 or any successor rule such
information as is required for the Purchaser to sell the Securities under Rule 144
without regard to the volume and manner of sale limitations.  The Company further covenants that it will
take such further action as any holder of Securities, Conversion Shares or
Warrant Shares may reasonably request, all to the extent required from time to
time to enable such Person to sell such Securities, Conversion Shares or
Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.


 


6.16                         Listing Maintenance.  The Company hereby agrees to use best efforts
to maintain the listing or trading of the Common Stock on a Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will 


 


22

















 


include in such application all of the Conversion
Shares and Warrant Shares, and will take such other action as is necessary to
cause all of the Conversion Shares and Warrant Shares to be listed on such
other Trading Market as promptly as possible. 
The Company will take all action reasonably necessary to continue the
listing and trading of its Common Stock on, and will comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or rules of,
each such Trading Market on which the Company’s Common Stock is listed or
trades.


 


6.17                         Disclosure of Transaction.  The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the “Press
Release”) and shall also file with the Commission a Current Report on Form 8-K
(the “Form 8-K”) describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the
Registration Rights Agreement, the Security Agreement, the Guaranty Agreements,
the Guarantor Security Agreements, each form of Warrant and the Press Release)
as soon as practicable following the Closing Date but in no event more than
four (4) Trading Days (defined below) following the Closing Date, which
Press Release and Form 8-K shall be subject to prior review and reasonable
comment by the Purchaser.  For purposes
of this Agreement, “Trading Day” means any day during which the principal
Trading Market on which the Common Stock is listed or traded shall be open for
trading.


 


6.18                           Further Assurances.  From time to time the Company shall execute
and deliver to the Purchaser and the Purchaser shall execute and deliver to the
Company such other instruments, certificates, agreements and documents and take
such other action and do all other things as may be reasonably requested by the
other party in order to implement or effectuate the terms and provisions of
this Agreement and any of the Securities.


 


6.19                         Use of Proceeds. 
The Company shall use all the proceeds received from the sale of the
Securities pursuant to this Agreement for growth, capital initiatives and
general corporate purposes.


 


6.20                         Implementation of
Series E Preferred Stockholders’ Rights to Elect Directors.  Promptly after Closing, the Company shall
take the following actions: amend its bylaws and take such other action at any such time as
necessary to implement the rights of holders of Series E
Preferred Stock, who, together with Series D Preferred stockholders have
the right to nominate and elect a majority of the members of the board of
directors as set forth in the Certificate of Designation for the Series E
Preferred Stock beginning with the first meeting of the shareholders of the
Company following Closing.


 


For
purposes of Articles VI–VIII, the term “subsidiary” shall be deemed to include
each Subsidiary and any subsidiary of the Company acquired or formed after the
date hereof.


 


23
















 


ARTICLE
VII

NEGATIVE COVENANTS


 


The Company hereby covenants and agrees, so long as any Preferred Share
remains outstanding, it will not (and not allow any subsidiary to), without the
prior written consent of the holder(s) of more than 50% of the number of
shares of Series E Preferred Stock outstanding (the “Majority Holders”),
directly or indirectly:


 


7.1                               Distributions and Redemptions.  (i) Except with respect to the Series A,
B, C, D, or E Preferred Stock, or forward stock splits in the form of a dividend,
declare or pay any dividends or make any distributions to any holder(s) of
any shares of capital stock of the Company or (ii) purchase, redeem or
otherwise acquire for value, directly or indirectly, any shares of Common Stock
of the Company or warrants or rights to acquire such Common Stock, except as
may be required by the terms of the Series D or E Preferred Stock; or (iii) purchase,
redeem or otherwise acquire for value, directly or indirectly, any shares of
preferred stock of the Company or warrants or rights to acquire such stock,
except as may be required by the terms of such preferred stock.


 


7.2                               Reclassification.  Effect any reclassification, combination or
reverse stock split of the Common Stock.


 


7.3                               Indebtedness.  Create, incur, assume, suffer, permit to
exist, or guarantee, directly or indirectly, any Indebtedness, excluding,
however, from the operation of this covenant:


 


(a)                                  Indebtedness to the extent disclosed in the SEC Documents filed prior to
the date hereof and otherwise existing on the date hereof; debt incurred in
connection with any acquisition not to exceed $1,000,000, and
any replacement Indebtedness to existing Indebtedness;


 


(b)                                 Indebtedness which may, from time to time be incurred or guaranteed by
the Company which in the aggregate principal amount does not exceed $500,000;


 


(c)                                  the endorsement of instruments for the purpose of deposit or collection
in the ordinary course of business;


 


(d)                                 Indebtedness relating to contingent obligations of the Company and its
subsidiaries under guaranties in the ordinary course of business of the
obligations of suppliers, customers, and licensees of the Company and its
subsidiaries;


 


(e)                                  Indebtedness relating to loans from the Company to its subsidiaries;


 


(f)                                    Indebtedness relating to any one capital lease in an amount not to
exceed $500,000;


 


(g)                                 accounts or notes
payable arising out of the purchase of merchandise, supplies, equipment,
software, computer programs or services in the ordinary course of business;


 


24

















 


(h)                                 Common Stock issued or issuable to financial institutions, or lessors,
pursuant to a commercial credit arrangement, equipment financing transaction, accounts receivable factoring, or a similar transaction.


 


The foregoing Indebtedness described in
subsections (a) – (h) above shall be referred to as “Permitted
Indebtedness”.


 


7.4                               Capital Stock.  Except for issuances to the Purchaser and
issuances required by securities issued and outstanding on the date hereof,
issue any equity security that is senior to or ranks pari passu
with the Series D Preferred Stock, whether with respect to right of
payment of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.


 


7.5                               Liquidation or Sale.  Sell, transfer, lease or otherwise dispose of
20% or more of its consolidated assets (as shown on the most recent financial
statements of the Company or the subsidiary, as the case may be) in any single
transaction or series of related transactions (other than the sale of inventory
in the ordinary course of business), or liquidate, dissolve, recapitalize or
reorganize in any form of transaction.


 


7.6                               Change of Control Transaction.  Except as disclosed in Schedule 7.6
attached hereto, enter into a Change in Control Transaction. For purposes of
this Agreement, “Change in Control Transaction” means the occurrence of (a) an
acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of fifty percent (50%) of the voting securities of the Company, (b) a
replacement at one time or over time of more than one-half of the members of
the Board of the Company which is not approved by a majority of those
individuals who are members of the Board on the date hereof (or by those
individuals who are serving as members of the Board on any date whose
nomination to the Board was approved by a majority of the members of the Board
who are members on the date hereof), (c) the merger or consolidation of
the Company or any subsidiary of the Company in one or a series of related
transactions with or into another entity (except in connection with a merger
involving the Company solely for the purpose, and with the sole effect, of
reorganizing the Company under the laws of another jurisdiction; provided that
the certificate of incorporation and bylaws (or similar charter or
organizational documents) of the surviving entity are substantively identical
to those of the Company and do not otherwise adversely impair the rights of the
Purchaser), or (d) the execution by the Company of an agreement to which
the Company is a party or by which it is bound, providing for any of the events
set forth above in (a), (b) or (c).


 


7.7                               Amendment of Charter Documents.  The Company shall not amend or waive any
provision of the Certificate of Incorporation or Bylaws of the Company in any
way that materially adversely affects the rights of the Purchaser without the
prior written consent of the Purchaser.


 


7.8                               Transactions with Affiliates.


 


(a)                                  Except as set forth on Schedule 7.8(a) attached hereto,
engage in any transaction with any of the officers, directors, employees or
affiliates of the Company or of its 


 


25

















 


subsidiaries, except on terms no less favorable to the
Company or the subsidiary as could be obtained in an arm’s length transaction.


 


(b)                                 Divert (or permit anyone to divert) any business or opportunity of the
Company or subsidiary to any other corporate or business entity.


 


7.9                               Registration Statements.  Except as set forth on Schedule 7.9
attached hereto, without the consent of the Purchaser, file any registration
statement with the Commission until the earlier of: (i) 60 Trading Days
following the date that a registration statement or registration statements
registering all the Conversion Shares, Warrant Shares and other Registrable
Securities is declared effective by the Commission; and (ii) the date the
Conversion Shares and Warrant Shares are saleable by Purchaser under Rule 144
under the Securities Act without limitation as to volume or manner of sale;
provided that this Section shall not prohibit the Company from filing a
registration statement on Form S-4 or other applicable form for securities
to be issued in connection with acquisitions of businesses by the Company or
its subsidiaries, or post effective amendments to registration statements that
were declared effective prior to the date hereof or to a registration statement
filed with the Commission on Forms S-4 or S-8.


 


ARTICLE
VIII

[INTENTIONALLY OMITTED]


 


ARTICLE
IX

INDEMNIFICATION


 


9.1                               Indemnification by the Company.  The Company agrees to defend, indemnify and
hold harmless the Purchaser and shall reimburse the Purchaser for, from and
against each claim, loss, liability, cost and expense (including without
limitation, interest, penalties, costs of preparation and investigation, and
the actual fees, disbursements and expenses of attorneys, accountants and other
professional advisors) (collectively, “Losses”) directly or indirectly relating
to, resulting from or arising out of (a) any untrue representation,
misrepresentation, breach of warranty or non-fulfillment of any covenant, agreement
or other obligation by or of the Company contained in any Transaction Document or in any certificate, document, or instrument
delivered by the Company to the Purchaser; or (b) any action
instituted against the Purchaser or its affiliates, by any stockholder of the
Company who is not an affiliate of the Purchaser, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of the Purchaser’s representations, warranties or covenants
under the Transaction Documents or any agreements or understandings the
Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by the Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance).


 


9.2                               Procedure.


 


(a)                                  The indemnified party shall promptly notify the indemnifying party of
any claim, demand, action or proceeding for which indemnification will be
sought under this Agreement; provided, that the failure of any party entitled
to indemnification hereunder to give 


 


26

















 


notice as provided herein shall not relieve the
indemnifying party of its obligations under this Article IX except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice.


 


(b)                                 In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable, good-faith judgment of the indemnified party a conflict of interest
between it and the indemnifying party exists with respect to such action,
proceeding or claim (in which case the indemnifying party shall be responsible
for the reasonable fees and expenses of one separate counsel for the
indemnified party), to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party elects to
defend any such action or claim, then the indemnified party shall be entitled
to participate in such defense (but not control) with counsel of its choice at
its sole cost and expense (except that the indemnifying party shall remain
responsible for the reasonable fees and expenses of one separate counsel for
the indemnified party in the event in the reasonable, good-faith judgment of
the indemnified party a conflict of interest between it and the indemnifying
party exists).


 


(c)                                  In the event that the indemnifying party advises an indemnified party
that it will contest such a claim for indemnification hereunder, or fails,
within thirty (30) days of receipt of any indemnification notice to notify, in
writing, such person of its election to defend, settle or compromise, at its sole
cost and expense, any action, proceeding or claim (or discontinues its defense
at any time after it commences such defense), then the indemnified party may,
at its option, defend, settle or otherwise compromise or pay such action or
claim.  In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party’s costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be Losses subject to indemnification
hereunder.


 


(d)                                 The parties shall cooperate fully with each other in connection with any
negotiation or defense of any such action or claim and shall furnish to the
other party all information reasonably available to such party which relates to
such action or claim.  Each party shall
keep the other party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto.


 


(e)                                  Notwithstanding anything in this Article IX to the contrary, the
indemnifying party shall not, without the indemnified party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim.  The
indemnification obligations to defend the indemnified party required by this Article IX
shall be made by periodic payments of the amount thereof during the course of
investigation or defense, as and when the Loss is incurred, so long as the
indemnified party shall refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification.  The indemnity
agreements contained herein shall be in addition to (i) any cause of
action or similar rights of the indemnified 


 


27

















 


party against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.


 


ARTICLE
X

MISCELLANEOUS


 


10.1                         Governing Law.  This Agreement and the rights of the parties hereunder
shall be governed in all respects by the laws of the State of New York wherein
the terms of this Agreement were negotiated.


 


10.2                         Survival.  Except as specifically provided herein, the
representations, warranties, covenants and agreements made herein shall survive
the Closing.


 


10.3                         Amendment.  This Agreement may not be amended, discharged
or terminated (or any provision hereof waived) without the written consent of
the Company and the Purchaser.


 


10.4                         Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon and enforceable by and against, the successors, assigns, heirs, executors
and administrators of the parties hereto. 
The Purchaser may assign its rights hereunder, and the Company may not
assign its rights or obligations hereunder without the consent of the
Purchaser.


 


10.5                         Entire Agreement.  This Agreement, the Transaction Documents and
the other documents delivered pursuant hereto and simultaneously herewith
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof.


 


10.6                         Notices, etc.  All notices, demands or other communications
given hereunder shall be in writing and shall be sufficiently given if
delivered either personally, by facsimile, or by a nationally recognized
courier service marked for next business day delivery or sent in a sealed
envelope by first class mail, postage prepaid and either registered or
certified with return receipt, addressed as follows:


 


if to the Company:


 


Andover Medical, Inc.


510 Turnpike
Street, Suite 204


North Andover, MA 01845


Attention: Chief Executive Officer


Tel. No.: (978) 557-1001


Fax No.: (978) 557-1004


 


with a copy to:


 


Phillips Nizer LLP


666 Fifth Avenue, 28th Floor


New York, NY 10103


Attn: Elliot H. Lutzker


Tel No.: (212) 841-0707


Fax No.: (212) 262-5152


 


28

















 


if
to the Purchaser:


 


Vicis Capital Master Fund


Tower
56, Suite 700


126 E.
56th Street, 7th Floor


New
York, NY 10022


Phone: 
(212) 909-4600


Fax:  (212) 909-4601


Attn: Shad Stastney


 


with a copy to:


 


Andrew D. Ketter, Esq.


Quarles & Brady LLP


411 East Wisconsin Avenue


Milwaukee, WI 53202


Phone: 
(414) 277-5629


Fax: 
(414) 978-8972


 


Such communications shall be effective
immediately if delivered in person or by confirmed facsimile, upon the date
acknowledged to have been received in return receipt, or upon the next business
day if sent by overnight courier service.


 


10.7                         Delays or Omissions.  No delay or omission to exercise any right,
power or remedy accruing to any holder of any Securities upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence, therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or thereafter
occurring.  Any waiver, permit, consent
or approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement must be, made in writing and shall
be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or
by law or otherwise afforded to any holder, shall be cumulative and not alternative.


 


10.8                         Severability.  The invalidity of any provision or portion of
a provision of this Agreement shall not affect the validity of any other
provision of this Agreement or the remaining portion of the applicable
provision.  It is the desire and intent
of the parties hereto that the provisions of this Agreement shall be enforced
to the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought.  Accordingly, if any particular provision of
this Agreement shall be adjudicated to be invalid or unenforceable, such
provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be 


 


29

















 


invalid or unenforceable, such deletion to apply only
with respect to the operation of such provision in the particular jurisdiction
in which such adjudication is made.


 


10.9                         Expenses.  The Company shall bear its own expenses and
legal fees incurred on its behalf with respect to the negotiation, execution
and consummation of the transactions contemplated by this Agreement and shall
pay all documentary stamp or similar taxes imposed by any authority upon the
transactions contemplated by this Agreement or any Transaction Document.  Without requiring any documentation therefor, the
Company will reimburse the Purchaser $50,000 for all fees and expenses incurred
by it with respect to the negotiation, execution and consummation of the
transactions contemplated by this Agreement and the transactions contemplated
hereby and due diligence conducted in connection therewith, including the fees
and disbursements of counsel and auditors for the Purchaser.  Such reimbursement shall be paid on the
Closing Date by the Purchaser deducting such $50,000 from the Purchase Price. The Company shall pay all reasonable, documented third-party fees and
expenses incurred by the Purchaser in connection with the enforcement of this
Agreement or any of the other Transaction Documents, including, without
limitation, all actual reasonable attorneys’ fees and expenses.


 


10.10                   Consent to Jurisdiction; Waiver of Jury Trial.  EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE AND COUNTY OF
NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND THE TRANSACTION DOCUMENTS. 
EACH OF THE PARTIES TO THIS AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PARTY MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY
SUCH COURTS AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURTS
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING.  EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
CONSENTS TO SERVICE OF PROCESS BY NOTICE IN THE MANNER SPECIFIED IN SECTION 10.6
AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
SUCH PARTY MAY NOW OR HEREAFTER HAVE TO SERVICE OF PROCESS IN SUCH MANNER.


 


10.11                   Titles and Subtitles.  The titles of the articles, sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.


 


10.12                   Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile signature page were an original thereof.


 


30

















 


10.13                   Default
under this Agreement.


 


(a)                                  Events of Default. 
The occurrence and continuance of any of the following events shall
constitute an event of default under this Agreement (each, an “Event of Default”
and, collectively, “Events of Default”):


 


(i)                                     if the Company shall default in
the payment of any dividend on or redemption of any Preferred Share when the
same shall become due and payable; and in each case such default shall have
continued without cure for ten (10) Trading Days after written notice (a “Default
Notice”) is given to the Company of such default;


 


(ii)                                  if the Company shall default in
the performance of any of the covenants contained in Articles VI or VII hereof
and (a) such default shall have continued without cure for ten (10) Trading
Days after a Default Notice is given to the Company or (b) such default
shall have materially adversely affected the Purchaser regardless of any action
taken by the Company to cure such default;


 


(iii)                               [Intentionally Omitted];


 


(iv)                              the suspension from listing,
without subsequent listing on any one of, or the failure of the Common Stock to
be listed or quoted on at least one of the following: the OTC Bulletin Board,
the American Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital
Market or The New York Stock Exchange, Inc. for a period of ten (10) consecutive
Trading Days and such suspension from listing (or listing on an alternate
exchange or quotation system) is not cured within ten (10) days after the
tenth (10th) consecutive day of such
suspension from listing;


 


(v)                                 the Company’s notice to the
Purchaser, including by way of public announcement, at any time, of its
inability to comply for any reason or its intention not to comply with proper
requests for issuance of, or its failure to timely deliver, Conversion Shares
upon conversion of Preferred Shares or issuance of Warrant Shares upon exercise
of the Warrant, provided the Company has not complied with the provisions of Section 2(c) of
the Certificate of Designation for the Preferred Shares and/or Section 1.6
of the Warrant;


 


(vi)                              [Intentionally Omitted]


 


(vii)                           while a Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Purchaser for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
ten (10) consecutive Trading Days, provided that the Company has not
exercised its rights pursuant to Section 3(n) of the Registration
Rights Agreement;


 


(viii)                        if the Company shall default in
the performance of any other material agreement, which has a material adverse
effect upon the Company, or covenant contained in this Agreement and such
default shall not have been remedied to the satisfaction of 


 


31

















 


the Purchaser
within thirty-five (35) days after a Default Notice shall have been given to
the Company;


 


(ix)                                if any material representation or
warranty made in this Agreement, any Transaction Document or in or any
certificate delivered by the Company or its subsidiaries pursuant hereto or
thereto shall prove to have been incorrect in any material respect when made;


 


(x)                                   the Company shall (A) default
in any payment of any amount or amounts of principal of or interest on any
Indebtedness as defined in Section 2.13 above and (other than the
Indebtedness hereunder) the aggregate principal amount of which Indebtedness is
in excess of $250,000  or (B) default
in the observance or performance of any other agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders or beneficiary or beneficiaries of such
Indebtedness to cause with the giving of notice if required, such Indebtedness
to become due prior to its stated maturity;


 


(xi)                                [Intentionally Omitted]


 


(xii)                             if a final judgment which, either
alone or together with other outstanding final judgments against the Company
and its subsidiaries, exceeds an aggregate of $250,000 shall be rendered
against the Company or any subsidiary and such judgment shall have continued
undischarged or unstayed for thirty-five (35) days after entry thereof;


 


(xiii)                          the Company or any subsidiary
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file
a petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against
it in an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), or admit in writing its inability to pay its debts (vi) issue
a notice of bankruptcy or winding down of its operations or issue a press
release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or


 


(xiv)                         a proceeding or case shall be
commenced in respect of the Company or any of its subsidiaries, without its
application or consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or
dissolution of the Company or any of its subsidiaries or (iii) similar
relief in respect of it under any law providing for the relief of debtors, and
such proceeding or case described in clause (i), (ii) or (iii) shall
continue undismissed, or unstayed and in effect, for a period of sixty (60)
days or any order for relief shall be entered in an involuntary case under 


 


32

















 


United States
Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of
any jurisdiction (foreign or domestic) against the Company or any of its
subsidiaries or action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to the Company or
any of its subsidiaries and shall continue undismissed, or unstayed and in
effect for a period of sixty (60) days.


 


(b)                                 Remedies.


 


(i)                                     Upon the occurrence and
continuance of an Event of Default, the Purchaser may at any time (unless all
defaults shall theretofore have been remedied) at its option, by written notice
or notices to the Company require the Company to immediately redeem in cash all
or a portion of the Preferred Shares held by the Purchaser at a price per share
equal to one hundred fifteen percent (115%) of the Stated Value of the Series E
Preferred Stock plus all accrued and unpaid dividends thereon at the time of
such request.  The remedy conferred by
this Section shall not be exclusive of any other remedy provided by any
Transaction Document or now or hereafter available at law, in equity, by
statute or otherwise.


 


(ii)                                  The Purchaser, by written notice
or notices to the Company, may in its own discretion waive an Event of Default
and its consequences and rescind or annul such declaration; provided that, no
such waiver shall extend to or affect any subsequent Event of Default or impair
any right resulting therefrom.


 


(iii)                               In case any one or more Events of
Default shall occur and be continuing, the Purchaser may proceed to protect and
enforce its rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Transaction Document or for an injunction against a violation
of any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law.  In
case of a default in the payment of any dividend on or redemption of any
Preferred Share, the Company will pay to the Purchaser such further amount as
shall be sufficient to cover the cost and the expenses of collection,
including, without limitation, actual attorney’s fees, expenses and
disbursements.  No course of dealing and
no delay on the part of a Purchaser in exercising any rights shall operate as a
waiver thereof or otherwise prejudice such Purchaser’s rights.  No right conferred hereby or by any
Transaction Document upon the Purchaser shall be exclusive of any other right
referred to herein or therein or now available at law in equity, by statute or
otherwise.


 


[Signature Page Follows]


 


33

















 


IN WITNESS WHEREOF, the parties hereto have duly executed this
Securities Purchase Agreement, as of the day and year first above written.


 


 


	
   

  	
  COMPANY:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ANDOVER MEDICAL, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: James Shanahan

  	
   

  
	
   

  	
  Title: CFO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VICIS CAPITAL MASTER FUND

  	
   

  
	
   

  	
  By: Vicis Capital LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Chris Phillips

  	
   

  
	
   

  	
  Title: Managing Director

  	
   

  
				



 


34

















 


EXHIBIT A


 


FORM OF
CERTIFICATE OF DESIGNATION OF


SERIES E CONVERTIBLE
PREFERRED STOCK


 

















 


EXHIBIT B


 


FORM OF SERIES F
WARRANT


 

















 


EXHIBIT C


 


FORM OF SERIES G
WARRANT


 


37

















 


EXHIBIT D


 


FORM OF SERIES H
WARRANT


 


38

















 


EXHIBIT E


 


FORM OF OPINION
OF COUNSEL